The Latest HSBC Scandal: An $80 Billion Capitalization Shortfall

Forensic Asia, a Hong-Kong-based reserch firm issued a "sell" recommendation on HSBC on the basis of "questionable assets" on its balance sheet. As The Telegraph reports the analysts involved actually worked at HSBC for 15 years and suggest the ginat bank could have overstated its assets by more than £50bn and ultimately need a capital injection of close to £70bn before the end of this decade. "HSBC has not made the necessary adjustments, during the quantitative easing reprieve...The result has been extreme earnings overstatement, causing HSBC to become one of the largest practitioners of capital forebearance globally... This charade appears to be ending."

Forensic Asia on Tuesday began its coverage of Britain’s largest banking group with a ‘sell’ recommendation, warning the lender had between $63.6bn (£38.7bn) and $92.3bn of “questionable assets” on its balance sheet, ranging from loan loss reserves and accrued interest to deferred tax assets, defined benefit pension schemes and opaque Level 3 assets.

The broker’s note is written by two of its senior analysts, Thomas Monaco (a former senior bank examiner at the Federal Reserve Bank of New York) and Andrew Haskins (previously worked at HSBC for 15 years).

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In the report, the analysts apply what they describe as a “moderate stress test” to the balance sheets of HSBC’s major subsidiaries.

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Taking the analysis further, the report sets out the impact of incoming Basel III capital rules and says HSBC could be required at a minimum to raise close to $60bn in new capital by 2019 and potentially as much as $111bn.

“In our view, HSBC has not made the necessary adjustments, during the quantitative easing reprieve. Rather, it has allowed legacy problems to linger as new ones in emerging markets gather pace. The result has been extreme earnings overstatement, causing HSBC to become one of the largest practitioners of capital forebearance globally. This charade appears to be ending, given how few earnings levers remain besides selling off core elements of the franchise and the stringencies of Basel III compliance,” wrote Forensic Asia.

The broker adds: “While having stated capital ratios well above peer averages is all well and good, HSBC’s stated capital ratios would appear to be nothing more than a mirage if our analysis is correct.”

Interestingly, these findings do not include litigation costs which can only make matters worse. Of course, this kind of "mirage" is just as applicable to the entirely opaque Level 3 assets of all the majot TBTF US banks so one can only imagine just how large the capital shortfalls really are. But don;t worry - Cramer says NIM will be huge (but the banks themselves don't)...

And now try to tell the equity managers that every single last financial problem (hidden and once brought to light) manifests itself first in the short term markets, the Source of all Solvency Considerations and Liquidity.But, oh, fucking no.Nobody believes it but for a very few truly sharp people.

Correction: Nobody Understands it, but for a few truly sharp people.

That's why the great (and yes, he was damned good, regardless of what you all dislike about his past employer) Paul McCulley sat upon the short term desk, and why his "big annual" speech was to the MoneyMarketeers in NYC, the short tern investor and funding folks.

It's not when ya run outa checks...It's when ya run outa money...Dumbfuck...

Your dead on, dead on. We have a SOLVENCY PROBLEM and it will be right back to 2008 and 2009 again and it will be worse. Because they can't put out that much money again (both US and Britian). We are done.

"HSBC has not made the necessary adjustments, during the quantitative easing reprieve...The result has been extreme earnings overstatement, causing HSBC to become one of the largest practitioners of capital forebearance globally... This charade appears to be ending."

Just like the US Government's ability (specifically the national security commissioner) to allow US companies to fudge their books under national security laws, I suspect HSBC has had a similar get out of jail free card in their PONZI deck of cards.

High street bank HSBC has predicted that a combination of factors will lead to a “new climate agenda” in 2014, as its own research reveals sustainable investments outperformed last year.

The HSBC Global Climate Change benchmark, which tracks the performance of sustainable companies, delivered 19.8% in 2013, outperforming the global equities market for the first time. This suggests investment in the sector is continuing to grow.

In a statement, the bank said, “We believe 2014 will mark the beginning of a new climate agenda. The traditional narrative was that climate risks are in the future, that carbon has to be priced to be cut, and that low-carbon alternatives are high risk and speculative.

“We see three issues that give new impetus to the climate economy in the year; impacts, carbon risk and green bonds.”

I hope that George Washington's Blog has taken note of my last comments to his article regarding Mexico/drugs and the US/UK involvement. I submitted info (comments) regarding Morrocco/Africa and the 'renewables" firm with a heavy footprint, there, UPC, and HSBC seems to the one of the banks involved. Mark my words, this is huge.

Sell blood, sperm, your children, and max every credit card to go all hands on deck long on margin XLF and just nurse that bitch for ten years and you will be all set. These financials are the titans of our economy and setting the example for sound business practices and legitimate growth in return on invested capital. Nothing will go wrong.

I have been in thebelly of the HSBC beast in Hong Kong(2009) and was struck by 2 things firstly how antiquated the whole place felt I thought i was going to be shown "ledgers" at one point and secondly the approach in HK was not to add more software to streamline processes it was to just add more staff and so the staff had the air of civil servants. So when I read the article above I think it made sense but not because they tried to inflate assets but because they just wouldn't have clue about what they really had and what its worth.

Recall that Bank Resolution was the new policy introduced by the UK Chancellor, UK Regulators, Bank of England and the banks in a flurry of secrecy early 2013 to deal with the Co-Op's GBP 1.5 billion black hole. MSM gave it a very wide berth. It has never been publicly explained, presumably out of fear of starting a bank run.

Although ordinary customer accounts at the Co-Op were not skimmed this was probably because two of the UK's major political parties bank with them (Labour Party & Lib Dem Party). In the case of HSBC, things are different, so if Bank Resolution comes to them, customers should be aware.